Monster Shares Rise as Goldman Downplays Regulatory Risk

Monster Beverage Corp. shares surged 13 percent to $51.97 at the close in New York, for the biggest gain since Oct. 24. Photographer: David Paul Morris/Bloomberg

Nov. 27 (Bloomberg) -- Monster Beverage Corp., the largest
U.S. energy drink maker by sales volume, rose the most in more
than a month after Goldman Sachs Group Inc. said a Food and Drug
Administration response to questions over the safety of energy
drinks was “encouraging.”

The shares surged 13 percent to $51.97 at the close in New
York, for the biggest gain since Oct. 24. The stock was little
changed this year through yesterday, after U.S. regulators
confirmed reports last month that the Corona, California-based
company’s caffeinated energy drinks were cited in the deaths of
five people in the past year.

The FDA is employing the help of outside advisers to
determine whether the beverages may cause harm when consumed in
excess or by those with pre-existing cardiac conditions, it
wrote in a letter released today. Any regulatory outcome is
likely to be “benign,” Judy Hong, an analyst with Goldman
Sachs, said today in a note.

“Our overall impression of the FDA letter would be that,
at this point, the FDA has little reason to think energy drinks
are unsafe when used in a responsible manner,” Hong wrote in
response to the FDA letter to Democratic Senator Dick Durbin, of
Illinois. “To the extent energy drinks are used
‘inappropriately’ the FDA has no jurisdiction to take action
against the manufacturer.”

Victims reported to the FDA had consumed Monster drinks
prior to their deaths, according to incident reports that
doctors and companies submit to the agency. The FDA said the
incidents are considered to be allegations, and no conclusion is
drawn until an investigation is completed.

Labeling, Ingredients

“Monster reiterates that its products are and have always
been safe,” the company said following the reports’ release.

Based on the review revealed today, the agency may move to
regulate the product’s use or labeling. The FDA said it will
also look into whether the drinks’ ingredients in addition to
caffeine are safe. The agency said it hadn’t seen problems with
two main additives, taurine and guarana.

Energy drinks aren’t bound by the FDA guidelines for
caffeine in sodas because they are often sold as dietary
supplements. Soda typically can have as many as 71 milligrams of
caffeine per 12 ounces and be considered safe by the FDA.

Caffeine in energy drinks often ranges from 160 milligrams
to 500 milligrams a serving, the FDA said in an August letter
responding to Durbin’s call for greater regulation.